Author Topic: Pick this one apart for me, Mustachians!  (Read 1101 times)

waltworks

  • Magnum Stache
  • ******
  • Posts: 4929
Pick this one apart for me, Mustachians!
« on: January 31, 2021, 01:53:23 PM »
Purchase price $90k - might be able to get it cheaper, since I'd be paying cash. I currently have no rentals and low (part time) income/large mortgage on primary (we cash out refi'd in the spring to put more money in the market) so I can't get a mortgage up front.
P&I: $0 unless I finance after the fact once I establish the rental income stream.
T&I: $100/mo in taxes (per county records), $60/mo insurance (estimate)

House is from 1900, but has has mechanical and electrical all updated in the last 15 years, a metal roof in good shape, and cement board siding also in good shape. It's pretty indestructible on the exterior. It does need exterior paint and some minor touching up inside but at most $5k for everything. So I'd estimate maintenance after that at $100/mo.

Rent would be in the ballpark of $1200 ($400-500 per bedroom, place is legal for up to 3 occupants and has 3 bedrooms/parking spots).

The town is also one in which my family might want to live at some point, though this particular house would have to be just a temporary solution for that (too small for our large family in the long term, only has 1 bathroom, in a mostly rental neighborhood).

In the winter, landlords traditionally pay for snow removal for the parking areas, so that will add maybe $50/mo amortized over the year.

Seems like a slam dunk, with $1200-1500 in rent against $310 of overhead and another $100/mo of vacancy.

Nice ~$900-1000 a month of cash flow on a $95k investment. Sounds pretty good...

But wait, you say, what about management? This place is 1500 miles away from me, and thus far, I haven't found a local property manager. A buddy lives around the corner and could keep a vague eye on it/hand keys to new tenants, but I can only remotely manage to a limited extent. And it's a place that would generally be rented to college kids (I've done this before) which means more hassle/work. I've remotely managed a house before by just incentivizing tenants to help show/recruit new tenants and finding a few trusted handymen, and it worked, but it was a little nerve wracking.

I'm leaning toward yes if I can find a property manager, but otherwise no, because I don't want to involve money/stress in my relationship with my local friend, and I don't want or need the stress for this amount of money.

Thoughts?

-W

PMJL34

  • Bristles
  • ***
  • Posts: 250
Re: Pick this one apart for me, Mustachians!
« Reply #1 on: January 31, 2021, 06:20:06 PM »
Sounds like a decent rental. I love the metal roof and hardie board siding. Very low exterior maintenance indeed.

But...how's the roof and HVAC? 1900 is a very old house, I'd check what "updated" really means. Does it mean they pex/coppered the entire water line or did they just replace a few corroded galvanized sections? Is the waste lines all ABS or brittled out cast iron? Is it still knob and tube and they just updated the panel? etc. etc.

Property managers in my area charge 8-10% of rent plus first month's rent for acquiring a tenant. If you have yearly turnover, that can really costly.

Keep us updated and best of luck!

waltworks

  • Magnum Stache
  • ******
  • Posts: 4929
Re: Pick this one apart for me, Mustachians!
« Reply #2 on: January 31, 2021, 07:42:37 PM »
I have not inspected in person (nor can/will I) but the listing agent claims no knob/tube, all GFCI, newish furnace/water heater/ductwork, etc. I'm sure there are some legacy items that will eventually fail, though. I've lived in a 1900 house personally. The nice thing is that the roof and siding are bombproof.

It does appear that the seller put some work/money into the place - they purchased it 2 years ago for $54k. I'm going to try to dig up the old listing/photos to compare.

My instinct is that someone decided college student landlording wasn't their cup of tea and is trying to get their upgrade money (plus some maybe, it might be overpriced) back out.

-W

Papa bear

  • Handlebar Stache
  • *****
  • Posts: 1718
  • Location: Ohio
Re: Pick this one apart for me, Mustachians!
« Reply #3 on: January 31, 2021, 07:47:09 PM »
Is the area somewhere you’d visit if it weren’t for the rental?  If it is, you can use the travel to the unit as a business expense.  Might sweeten the deal a bit.

I think you can look to local realtors for potential management.  Or look at the other local college rental companies and see if they want to take on another unit.  They may piece out some of the management duties. 


Sent from my iPhone using Tapatalk

waltworks

  • Magnum Stache
  • ******
  • Posts: 4929
Re: Pick this one apart for me, Mustachians!
« Reply #4 on: January 31, 2021, 09:20:16 PM »
Yes, we'd visit at least once every year or two. Good point on maybe writing off some travel expenses.

I need to put more effort into finding managers. There's got to be a few.

-W

Archipelago

  • Bristles
  • ***
  • Posts: 391
  • Location: U.S.
Re: Pick this one apart for me, Mustachians!
« Reply #5 on: January 31, 2021, 09:45:09 PM »
Does your local friend have experience with rental real estate? If he's someone competent and trustworthy, just pay him the management fee so it's a win-win without some weird dynamic about money.

You can also look locally for other managers. With college rentals are the PMs generally higher, like 20%? What's the market like in your area?

waltworks

  • Magnum Stache
  • ******
  • Posts: 4929
Re: Pick this one apart for me, Mustachians!
« Reply #6 on: January 31, 2021, 10:45:32 PM »
Does your local friend have experience with rental real estate? If he's someone competent and trustworthy, just pay him the management fee so it's a win-win without some weird dynamic about money.

You can also look locally for other managers. With college rentals are the PMs generally higher, like 20%? What's the market like in your area?

I do not involve friends or family in investments/jobs/money/management, full stop. That is a hard no. I've seen it go badly too many times. He's also a very busy guy.

This particular area is a pretty small college town so I don't really know how the PM scene works (or doesn't, it might be 100% self-managing mom and pop folks). There is one major landlord with hundreds of units who I have spoken with briefly but he only manages his own properties.

-W

theoverlook

  • Bristles
  • ***
  • Posts: 392
Re: Pick this one apart for me, Mustachians!
« Reply #7 on: February 01, 2021, 08:52:34 AM »
"Cement board siding" - is this a relatively new addition? If it's old cement board siding, that's the stuff that was chock full of asbestos.

waltworks

  • Magnum Stache
  • ******
  • Posts: 4929
Re: Pick this one apart for me, Mustachians!
« Reply #8 on: February 01, 2021, 09:39:05 AM »
That's a great question and a good point. I do know that there has been asbestos mitigation performed on the inside of the house (ductwork all replaced).

On the exterior I'm less concerned but it is still something worth looking into.

-W

Archipelago

  • Bristles
  • ***
  • Posts: 391
  • Location: U.S.
Re: Pick this one apart for me, Mustachians!
« Reply #9 on: February 01, 2021, 11:42:04 AM »
If you can find someone to act as boots on the ground in case the remote managing/friend checking doesn't work out, it seems like a decent deal. Probably wouldn't call it a homerun.

Still, with the numbers provided you're looking at an annual ROI of 12-13% + any tax benefits. At that point, does it make sense to just buy index funds and not have to deal with any headaches? Maybe. You did mention the prospect of later moving into the house if you wished to relocate. IMO the deal would come down to how important that is to you and if it is, no problem going for it.

waltworks

  • Magnum Stache
  • ******
  • Posts: 4929
Re: Pick this one apart for me, Mustachians!
« Reply #10 on: February 01, 2021, 12:46:53 PM »
This return is triple what I'd predict/CAPE would suggest for stock returns in the medium-long (10 year) term.

It's also like any RE, concentrated risk, which is exacerbated here by me paying cash. I could finance down the line easily, though.

It's at least some work, too. I make $150-200/hr in my part time fun gig, so if it ate up more than 10-20 hours a year or so, it definitely wouldn't be worth it. I've always self-managed, so I'm not sure how much work I could expect when using a PM company.

-W

Blindsquirrel

  • Pencil Stache
  • ****
  • Posts: 685
  • Age: 3
  • Location: Flyover country
Re: Pick this one apart for me, Mustachians!
« Reply #11 on: February 02, 2021, 06:48:46 PM »
   No, no no in my opinion. College students are vermin as tenants and will mess the place out up routinely. Please do not start your RE investing life with a college rental 1500 miles away and if you choose to do so, get a full service property manager and check the hell out of their reference.  25 years as an investor in all phases and PM me if you wish to discuss. We own 40 SFRs and had one college rental, charged like sin and never made much until we sold and even then it was a complete dog as an investment. Leave college housing to the hardy souls who know what they are doing.  If the cash flow and amount of hassle were all that great the owner would not be selling.  We never sell houses with low hassle and that kind of yield.

Archipelago

  • Bristles
  • ***
  • Posts: 391
  • Location: U.S.
Re: Pick this one apart for me, Mustachians!
« Reply #12 on: February 02, 2021, 07:22:40 PM »
This return is triple what I'd predict/CAPE would suggest for stock returns in the medium-long (10 year) term.

It's also like any RE, concentrated risk, which is exacerbated here by me paying cash. I could finance down the line easily, though.

It's at least some work, too. I make $150-200/hr in my part time fun gig, so if it ate up more than 10-20 hours a year or so, it definitely wouldn't be worth it. I've always self-managed, so I'm not sure how much work I could expect when using a PM company.

-W

I mean, listen, walt. You've owned rental properties beforehand. You know what it's like to be a landlord. You know everything that comes with it. You don't need this place.

If you're handy, don't mind the occasional headaches, and somewhat enjoy enjoy owning rentals then the deal works fine.

Otherwise, you'll have to weigh this between buying index funds.

ChpBstrd

  • Magnum Stache
  • ******
  • Posts: 3132
Re: Pick this one apart for me, Mustachians!
« Reply #13 on: February 02, 2021, 07:24:47 PM »
I can't tell you how many things I've bought that looked great on the internet and turned out to be trash when viewed in person.

I don't think I would own rental RE from 1500 miles away even if I did have a PM. How would you know they were keeping up with the property, if tenants had trashed out the whole yard, or if the neighborhood was going downhill because the town's only employer was going tits up? And what will you do if you are not happy with the only PM in the entire county? Can't fire them.

Archipelago

  • Bristles
  • ***
  • Posts: 391
  • Location: U.S.
Re: Pick this one apart for me, Mustachians!
« Reply #14 on: February 02, 2021, 07:25:48 PM »
   No, no no in my opinion. College students are vermin as tenants and will mess the place out up routinely. Please do not start your RE investing life with a college rental 1500 miles away and if you choose to do so, get a full service property manager and check the hell out of their reference.  25 years as an investor in all phases and PM me if you wish to discuss. We own 40 SFRs and had one college rental, charged like sin and never made much until we sold and even then it was a complete dog as an investment. Leave college housing to the hardy souls who know what they are doing.  If the cash flow and amount of hassle were all that great the owner would not be selling.  We never sell houses with low hassle and that kind of yield.

Dang, this post read as brimming with assumptions.

Blindsquirrel

  • Pencil Stache
  • ****
  • Posts: 685
  • Age: 3
  • Location: Flyover country
Re: Pick this one apart for me, Mustachians!
« Reply #15 on: February 02, 2021, 07:40:27 PM »
   Just honest advice as have been there and done that. Principle in 80+ deals and just my 2 cents. YMMV. Taking on a place where you can not get a mortgage is bad enough. Should do the math on 100% financing in any event. If it does not make sense at that level it does not make sense to make a large investment 1500 miles away.  College units turnover often vs.  3 bed sfr.
https://tenantplanet.com/blog/how-long-does-a-tenant-stay/

waltworks

  • Magnum Stache
  • ******
  • Posts: 4929
Re: Pick this one apart for me, Mustachians!
« Reply #16 on: February 02, 2021, 08:03:30 PM »
So, just to be clear, I have had a lot of rental properties in the past, including college rentals. I sold all of them over the years as I got tired of dealing with them and as prices skyrocketed (though in hindsight I could have held on longer, obviously).

This is more useful as a foot in the door to have a place to live in a different town we might want to live in down the road, and it also might make a few bucks. I'm not sure how serious we are about that, though.

There is no question I do not need to do this, we are FI. That to me is the strongest argument - the hassle is not worth it, even if it's highly profitable. The equity in our residence would buy a baker's dozen of these houses, so if we really wanted to move, it's not like we couldn't just buy something then.

The mortgage can't be gotten, as I tried to explain, because I don't work much and hence don't have a ton of income to qualify with. It could easily be financed after the fact using the rental income, however.

-W
« Last Edit: February 02, 2021, 08:06:39 PM by waltworks »

Paul der Krake

  • Walrus Stache
  • *******
  • Posts: 5466
  • Age: 13
  • Location: UTC-10:00
Re: Pick this one apart for me, Mustachians!
« Reply #17 on: February 02, 2021, 08:11:26 PM »
Good investment, sounds like work though.

-P

Blindsquirrel

  • Pencil Stache
  • ****
  • Posts: 685
  • Age: 3
  • Location: Flyover country
Re: Pick this one apart for me, Mustachians!
« Reply #18 on: February 02, 2021, 08:23:26 PM »
   Sorry about that @waltworks  you know what you are doing. Did not see who posted tbh, for a first time investor I would nope out. For you, do whatever, it is not like it will hurt you. The PITA factor kinda makes it not worth it up to a point as the hassle factor for student housing can be large. That said, if you want to move there, go for it, same reason we are looking for investments in Maui and I don't know dick about that market other than the weather rocks.

draco44

  • Bristles
  • ***
  • Posts: 334
Re: Pick this one apart for me, Mustachians!
« Reply #19 on: February 02, 2021, 08:34:53 PM »
A few thoughts:
- Sounds like you could handle the hassle if you decide to buy. For me the distance factor would make this too much work.
- I agree about not putting any burden on your friend to handle stuff for you. Keep friends out of something like this.
- It would make me nervous this property was on the market after only two years. Is that common in that town? What's story there?
- Has this older house been inspected for lead paint? You'll need to deal with that if you find it.

Also, you may not care about this if this is going to be a long-term investment property, but is the school this property is near currently having in-person classes, or are they all remote due to COVID? if you'd be wanting to rent soon I'd be nervous about a decreased pool of tenants for at least the next year.

MainstreamContrarian

  • 5 O'Clock Shadow
  • *
  • Posts: 15
Re: Pick this one apart for me, Mustachians!
« Reply #20 on: February 03, 2021, 12:07:55 AM »
My experience with 2-3 out of town rentals says no because it’s really different than a rental in your own town.
First, for whatever reason the local market is setting that price. So, you are probably sitting in a higher cost area and the deal looks relatively good but I doubt it’s actually a good return. Trust that the local market knows better how to value real estate then an out of state buyer.
Second, minor repairs that I would do myself turned into hundred dollar expenses.
Preventative maintenance that I would normally do would not be done and also turned into hundred dollar expenses.
you already know about the college students so I won’t go into that.
My buddy with out of town rentals is Always telling me about the rental manager recommending expensive repairs done by her brother-in-law or friend.  Also, I always found that I cared more about re-renting my unit than a hired property manager.  Along the same lines, it’s easy for the property manager to consider you a rich guy from out of state and you get that type of service.
Finally, I don’t know if you normally do home inspections yourself, but if you’re going to move forward you certainly would wanna hire a home inspector to thoroughly check it out.
« Last Edit: February 03, 2021, 12:12:25 AM by MainstreamContrarian »

dan.johnston

  • 5 O'Clock Shadow
  • *
  • Posts: 11
Re: Pick this one apart for me, Mustachians!
« Reply #21 on: February 04, 2021, 05:58:27 AM »
I wouldn’t do it. You lost me at 1900s house. I’ve worked on many hundred plus year old homes and “remodeled“ really never means very much. You have a 89% chance of having a significant amount of lead paint in there. Plus asbestos. And every other toxic “miracle product“ that has been used over the last 120 years in construction.

There is this odd misconception that houses were built well back in the old days. As if the fact that a 2 x 4 really measured 2“ x 4“ will make up for all the many many other bad structural decisions, undersized rafters, over notched joists, insufficient bracing, etc, etc.

Everyone I know that has bought 100-year-old house calls it their “money pit“. Sometime affectionately, sometime not.

Plus the added difficulty of managing a rental that is a 2-3 day drive away from you? Sounds like a no brainer to me. :)

mozar

  • Magnum Stache
  • ******
  • Posts: 3462
Re: Pick this one apart for me, Mustachians!
« Reply #22 on: February 04, 2021, 10:41:12 AM »
Wait, do you know about the college itself? Just read an article about SUNY New York is down 20,000 applications. What's the viability of this college? It's not a good deal if there's no one to rent it.